Question: Why Does The Rule Of 70 Work?

The Rule of 70 is commonly used in accounting and finance as a way of estimating the number of years (t) it will take for the principal investment (P) to double in value given a particular interest rate (r) and an annual compounding period.

The Rule of 70 says that the doubling time is close to .

Why is 70 used in the Rule of 70?

The rule of 70 is used to determine the number of years it takes for a variable to double by dividing the number 70 by the variable’s growth rate. The rule of 70 is generally used to determine how long it would take for an investment to double given the annual rate of return.

Why is the rule of 70 useful?

This rule is useful in many aspects. In the case of government in relation to the economy, the rule of 70 applies in gauging how long the Gross Domestic Product will take to double. An illustration could be as follows: If the growth rate is 10%, then you simply divide the 70 with the growth rate of 10%.

Why does the 72 rule work?

The Rule of 72 – Why it Works

You can think of this as The Rule of 69 (multiplying the .69 by one hundred, so that the interest rate can be expressed as a percent instead of a decimal). It isn’t an estimate – it’s the exact answer for doubling your money, assuming that the interest is compounded continuously.

How do you do the Rule of 70?

Exponential Growth and the Rule of 70. There’s an easy way to figure out how quickly something will double when it’s growing exponentially. Just divide 70 by the percent increase, and you’ve got the doubling time. It works in reverse, too: divide 70 by the doubling time to find the growth rate.